Model paper: 1
CBSE - XII
Section A-NATIONAL INCOME ACCOUNTING
Q 1. Define'' gross value added." 
Ans : Gross value added can be defined as value of gross output less
value of intermediate consumption.
Q 2. Define an open economy. 
Ans : An open economy is that economy which has economic relations
with the rest of the world.
Q 3. When can the national income of a country be less than its net
domestic product at factor cost? 
Ans: when the net factor income from abroad is negative.
Q 4. Why are domestic services rendered by housewives not included
in production? 
Ans : services of the housewives are not included in the national
income because they are not rewarded in money terms.
Q 5. What are capital tr
Ansfers? Give two examples of such tr
Ans : Tr
Ansfers in cash or kind made out by the donor from its wealth
or savings to be used by the recipient for gross capital formation or
other forms of accumulation and long time expenditure are called capital
Examples of capital tr
Ansfers within country: death duties, Inheritance
taxes and tax on capital gains.
Examples of capital tr
Ansfers between the country: war damages, Economic
Q 6. Give meanings of final goods and intermediate goods. 
Ans : Goods may be either 1) intermediate goods and 2) final goods.
Intermediate goods: These are those non-durable producer goods, which
are used in the production of other goods and services or are purchased
for resale. Raw materials, fuel, electricity, spare parts are examples
of intermediate goods. The values of intermediate goods are not included
in the national income.
Final goods: Final goods are those goods, which are used either for final
consumption or for capital formation. These are not resold. They are of
two types: a) consumer goods and b) capital goods. Television, refrigerators,
shirts, milk machines, truck, tractor, buildings are all examples of final
goods. The value of final goods is included in the national income.
Q 7. Distinguish between consumption of capital and capital loss.
Ans : consumption of fixed capital refers to the fall in the value
of fixed capital assets such as machinery equipment etc, due to their
normal wear and tear and expected obsolescence. Capital loss refers to
the fall in the value of fixed capital assets due to unexpected obsolescence
such as war, floods, earthquakes, fires theft etc.
The main difference between capital loss and consumption of fixed capital
is that in case of former there is loss in the value of fixed capital
assets without incurring any production while in case of the latter, the
loss is due to the normal use of fixed capital in the process of production.
Q 8. Calculate value-added by firms A and B from the following data:
(Rs. In Lakhs)
|1) Purchases by firm B from firm A
2) Sales by firm B
3) Imports by firm B
4) Rent paid by firm B
5) Opening stock of firm B
6) Closing stock of firm B
7) Purchases by firm A from firm B
8) Closing stock of firm A
9) Opening stock of firm A
Of firm A
|Value of output
|Changes in stock
|Activities of firm
|Value of output
||Value of added
|Changes in stock
|Sales to A
Total value added is equal to value added by firm A + value added by
=30+55= 85 lakhs.
Q 9. How is net value added by registered manufacturing sector estimated
in India? 
Ans : The net value added by registered manufacturing sector is estimated
by value added method in the following way:
1. This sector is divided into two parts---- census sector and sample
2. Data is collected annually by National Sample Survey Organisation (NSSO)
in both parts of the sector. The surveys are known as Annual Survey of
3. Value of output, intermediate consumption and depreciation are derived
4. Net value added is obtained by deducting the value of intermediate
consumption and depreciation from the value of output.
Q 10.Explain the economic interdependence among enterprises in modern
Ans : Economic interdependence me
Ans that the demand for the goods
and services of any enterprise depends upon the income generated in other
enterprises. For example-incase if there is a rich harvest in agriculture
in a year, the farmers due to higher income, will demand more of consumer
goods like TV, clothes, cycles, soaps etc. the enterprises which produces
these goods would increase their production. It will result in more employment.
The income of the people in these enterprises would increase. They, in
turn, will demand more agricultural products like foodgrains, pulses,
milk etc. as a result, the demand for agricultural products would go up.
So both enterprises will be economically interdependent on each other.
The same happens between the tertiary sector and the other sectors also.
Q 11.Distinguish between Process based division of labour and Product
based division of labour. Explain briefly. 
Ans : product based division of labour is that division of labour
in which a worker specializes in the production of a single good. Under
it, a single worker or a family undertakes all the processes of production
of a good. For example, a farmer in India undertakes himself all the process
of production of a crop like cultivation of land, sowing of the seeds,
watering the field and harvesting the crops. It is found in the household
Process based division of labour is that division of labour in which the
production of a good is divided into several processes and each worker
specializes in each process. In other words, in case of process based
division of labour, work is divided onto various parts or subparts and
each subpart is handled by a specialized person. It is found only in corporate
enterprises using capital intensive technology.
Q 12. Explain any three precautions required to be taken while estimating
National income by Income method. 
Ans : Following precautions are required while estimating national
income by income method;
Ansfer payments are excluded.
2. Value of production for self consumption
3. illegal incomes and windfall gains are excluded
4. Death duties, wealth taxes and tax on windfall gains are excluded.
Q 13. Net value added at factor cost and factor income is one and
the same thing. Explain. 
Ans : production me
Ans addition of value to intermediate inputs by
a production unit with the combined efforts of factor of production (land,
labour , capital, etc). The factors of production have, therefore, legitimate
claim to share the value added in the accordance with their contribution
in the production process. So, whatever value is added by the factors
of production, the same gets distributed among them in the form of rent,
wages, interest, and profit. In this way, factor income is generated in
the production process and is always equal to the net value added at factor
Q 14. Explain the methodology of estimating the contribution of the
construction sector to National income in India. 
Ans : In India expenditure method together with commodity flow method
is used for estimating the contribution of construction sector to national
income. Construction activities are classified as under;
a) urban construction (pucca construction)
b) rural construction (kutcha construction)
In the field of urban construction, according to commodity flow approach,
the value of inputs like cement, steel, bricks, sanitary fittings, electrical
goods and other industrial products needed by construction sector are
taken from the Annual Survey of Industries (ASI), government departments
and from a large number of dealers of building materials and other charges.
In the field of kutcha construction, the value of output is estimated
from the survey of NSSO. From the value of output, consumption of fixed
capital and value of intermediate consumption are deduced to arrive at
net value added in each sector separately. In the kutcha construction
sector, consumption of fixed capital is almost nil.
Q 15. Explain the method of estimating private final consumption expenditure
in India. 
Ans : Components of private final consumption expenditure:
· Actual final expenditure of households
· Imputed final expenditure by households
· imputed final expenditure by non profit institutions serving
· net gifts in kind received from abroad minus sale of second hand
and scrapped good.
Final consumption expenditure of households: it includes expenditure of
households on durable goods semi durable, non- durable, services and direct
purchases made abroad by resident households.
Imputed final expenditure by households: expenditure for self-consumption
and non occupied building are imputed and added to final expenditure for
computation of national income.
Final expenditure by non profit institutions serving households: it is
purchase of goods and services +compensation of employees gifts in kind
less net sales of second hand and scrap goods. These non-profit institutions
are trade unions, charitable hospitals, and cultural organisations. Etc.
Net gifts in kind received from abroad: difference between gift received
from abroad and gifts given to foreign is termed as net gifts in kind
from abroad. It is added for calculation of private final consumption
expenditure. Sale of second and scrapped goods is deducted from it.
Deductions : net sales of second hand goods, scraps and wastes.
Exclusion : final consumption expenditure of non residents in the domestic
market is excluded from private final consumption expenditure.